Accounting for Partnerships

McGill and Smyth have capital balances on January 1 of $50,000 and $40,000, respectively. The partnership income-sharing agreement provides for () annual salaries of $22,000 for McGill and $13,000 for Smyth, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shares 60% by McGill and 40% by Smyth.

Instructions

1. Prepare a schedule showing the distribution of net income, assuming net income is (1) $50,000 and (2) $36,000.
2. Journalize the allocation of net income in each of the situations above.

Solution